As the cost of living continues to rise, a lot of people are now having a hard time even paying for their regular monthly expense.
It’s not enough to just have a stable job nowadays, as managing your finances will now be dependent on how much money you are earning. And this is not yet including the possible emergency expenses that can occur anytime.
Regardless of the situation, whether it is an emergency expense, or they just do not have enough money to pay their monthly expenses, a lot of people turn to the loan lending industry for financial help. With a variety of loan types out there, it can be quite hard to find what you really need. However, there is one loan type that has gained great popularity, thanks to its lack of requirements and fast service. We are talking about online payday loans. Below we are going to talk about payday loan default consequences and how to deal with such a situation.
Payday loan default consequences
Payday loans are known for their very high-interest rates and fees that occur if you fail to pay back the loan on the due date.
If you have taken out a payday loan to deal with an emergency financial situation or pay your monthly bills, and now you are stuck and unable to repay it, there are still some options you may take advantage of. But first, let’s review the consequences of a payday loan default.
You really should consolidate your payday loans before it is too late.
Credit score consequences
If you fail to repay your payday loan on time and you do not have an arrangement for an alternative plan for repaying it with your lender, you can definitely expect your credit score to take a hit.
In cases where borrowers default, the loan lending companies normally sell the debt to an agency to collect it. That collection agency will then report the unpaid payday loan to the major credit bureaus.
- The collection agency reporting you to the credit bureaus will not be your only problem. These agencies are known for their aggressive collecting methods. They will not stop until they get you to repay the money. They may start calling you at your workplace. If that is not enough, they may start calling your family and friends and ask for the payment.
- Once your credit score has suffered a hit due to a payday loan default, you will pretty soon see that it is going to be much more difficult to get another loan or a credit card.
- Even if you manage to repay the loan at some point, that will not reduce the damage to your credit as collection agencies action will stay on your credit report for years to come.
You could be sued in civil court
If you fail to repay your payday loan, the payday loan lending company has the right to sue you in order to collect the money you have not repaid.
After the payday loan lending company gets a court judgment against you for the money that you owe, the lender can then seize a property of yours (not without the assistance of an officer of the law enforcement), and then sell it in order to pay for the loan balance. Unlike a secured loan where the loan is secured by using a specific property as collateral, with debt judgment, the debt can be repaid by selling off any property you own.
- In almost all of the state in the U.S., court debt judgments last for 10 years. That means that if a payday loan lending company has a judgment against you, that lender has the right to seize whatever property you acquire within the next ten years after the judgment, unless, of course, you manage to repay the loan within that time.
- Although a payday loan lending company can sue you to collect the amount of your payday loan, defaulting on a payday loan is not a crime. Therefore, if you fail to repay your loan, you are not a criminal. There are some collection agencies with the habit of threatening borrowers with criminal actions. You will in no way be sent to jail unless planning to not repay the payday loan was the reason you got it in the first place. If a collector threatens you with an arrest, you should immediately contact a lawyer.
You should expect to pay extra fees and interest
The more time you go without repaying your payday loan, the more money you will owe to the payday loan lender.
Payday loan lending companies normally charge extremely high fees and interest rates (the annual percentage rate can go up to 550%) for non-payment.
Therefore, you can quickly find yourself in a situation where you own $1000 for a $250 payday loan that you have taken out a few months back. There are certain states where the payday loan law regulations forbid payday loan lenders from exceeding a certain limit when charging interest and fees for loan non-payment. However, in states such as Texas, a payday loan lending company is allowed to charge as many fees and interest rate for non-payment as the company sees fit.
What to do if you are unable to repay your loan
In case you cannot manage to repay your payday loan, there are still some things you may try:
- Try qualifying for an extended payment plan (EPP)
- Contact a credit counselor
- Try negotiating with the payday loan lender directly
- You can file a complaint with the Consumer Financial Protection Bureau
- You can also try filing a complaint against your payday loan lending company through a state agency
Whatever action you decide to take is going to be better than taking no action at all.